Renren's Stock Awakens

Last Friday, I wrote about how I had taken a position in Renren (RENN) because it was due for a bounce. This morning, we got a big one.

Going into the close, the stock is trading up 11% at $3.10 on 4x the normal volume in the stock. What's driving it? Nothing material, as far as I can see. It's more a case of investors positioning ahead of next Monday's earnings.

The immediate move in Renren this morning seemed to also spark a move in Dangdang (DANG), which reports earnings next Tuesday. But the magnitude of the 7% Dangdang move was not as strong as Renren's. Other Chinese Internet stocks doing well today are Sina (SINA), which also reports next Monday, and Sohu (SOHU), which reported in April. And Qihoo (QIHU) is up more than 8% today, with earnings coming May 20. That move seems to have helped Baidu (BIDU), which is up nearly 4% today.

Youku (YOKU), which doesn't next report earnings until June, has been slightly negative today, so it's not just a case of all Chinese Internet stocks going up.

What also might be occurring today is simple sector rotation. Although the S&P 500 is up 13.5% year to date, the Chinese Internet stocks have not participated in that gain. Baidu is down 12.5% this year, Dangdang is down 1% and Youku is "only" up 8%.

A big part of today is a move among investors to start to get long the Chinese Internet sector in hopes that there will be a catch-up move the rest of the year. Of course, these stocks are all high beta, so any move is likely to be a sling shot in several (but not all) of them.

Renren is due for a snap-back move off of decent earnings next week. As I said last week, it's less of a social networking company and much more of a mobile gaming company. If it can continue to monetize its homegrown game hits and find a way of monetizing Android phones in China (and not just iOS), it will be able to post solid results.

This should allow investors to say that RENN are worth a healthy amount more than just its cash assets -- where it's trading now. If the report is good, it would not surprise me to see Renren touch $6 by the end of summer. If the report is so-so, you're protected on the downside with the cash value of the business and you will be able to stick around for a turnaround later in the year or cut your losses, which should be minimal at that point.